Wednesday, 9 March 2011

We can safely call HSBC's bluff

It's one of Parkinson's laws that a large corporation will confidently construct an expensive new headquarters immediately prior to its bankruptcy. Just so with the hubristic banks; as new brash towers arose on Canary Wharf, so the banks failed, rescued only by the largesse of Brown's government, a largesse that has been repaid with singular ingratitude and the rapacious fleecing of the banks' customers. Barclays and HSBC benefited, albeit indirectly, from the bail out as much as the more prominent casualties. And now in a little piqued fit of petulance, HSBC shareholders are mooting moving the bank's 52,000 staff to Shanghai. This won't happen, for two reasons.

Firstly, corporate location is a long-term game, at least a 25-year decision. As China's economy dominates the world, big corporations will undoubtedly relocate there in time, but slowly, with Chinese staff making up the bulk of the Headquarters population. The 'shadow' HQ needs time to grow and establish, with a gradual transfer of HQ functions, so that when the move comes, it's effectively just the Chief Executive and a few top-table executives who move. The senior Chinese staff will all have spent several years working in the existing HQ by then. On an organisational level, the corporate shift to China is about ten years away at least.

Secondly, the task of moving 52,000 bankers is as nothing to moving 52,000 wives and 104,000 children away from their rotary clubs and boarding schools, Lutyens-clone homes in Surrey, ponies, grandmothers, Waitroses and cosy social circles. And for many bankers the prospect of a Chinese prison or a round from an AK47 in the back of the head if they screw-up again will be far less attractive than a wagging finger and a frown from the Bank. The BBC can't even get a few hundred broadcasters to move up the road to Manchester without major grief, and HSBC won't even contemplate a mass move to Shanghai.

In Stalin's words, it's safe to push the bayonet in a bit further. It hasn't yet encountered real resistance.

4 comments:

They don't need to move 52,000 bankers and staff and their families to Shanghai. It's more like allowing perhaps 520 bankers to move, fire 51,480 bankers and support crew, and get new ones in Hong Kong and Shanghai and whatever.

In reality, this does not happen overnight. Nor is it so absolute, because the bank would still have operations in the UK even if the head office is not there. But the announcement day does have a profound impact.

For me, I'd gladly recommend you to indeed push the bayonet, as I live a sufficiently long distance away, so I'll be merely an observer, and perhaps other countries could learn a lesson here.

You got HSBC and HQs wrong. They sold the property at the absolute peak of the market, then leased back half the floor space (and encouraged home working etc). I think they have bought back some of it at well below what they sold it for. The contrast with ABN Amro and RBS is there to see.

I suspect that the part of a business which defines its actual domicile and is their registered offices for legal purposes is actually quite small. If you have ever been to the Cayman Islands or the Bahamas, you'd find that there are huge numbers of well known names apparently domiciled there for tax purposes, including the overseas operations of most British banks. Most seem to comprise a small office and a brass plate on the door! I can't see that HSBC will have any problem.

No, we don't need or want to drive them away. We need their individual and corporate taxes. If the individuals or companies feel unwelcome here and the regime is unfavourable, they will absolutely, surely move to a kinder regime. All that was needed in previous years (but was evidently lacking) was closer regulation and more robust liquidity rules.

The problem we have here is that the last government and this current lot have managed to bamboozle us all into believing that it was all those nasty cruel evil bankers wot got us into this mess. "A big boy dunnit and ran away". Some of it, yes. Most of it was the last governmenmts fault for allowing regulation (sic) to run riot and on top of this, spending what we didn't earn and encouraging others to do likewise. Wakey-Wakey UK - This is what Labour governments do - and we never learn. No Labour government, since the start of the Labour movement, has *ever* left power (been kicked out) with the county's books balanced.

No - we need bankers to stay here, become profitable here, pay their taxes here, hire their new staff here, and pay the tax-payers borrowed money back plus interest or growth in share value. Executed correctly, this could be a big earner for the UK but one thing is for sure; if we run them out of town and ensure that they cannot succeed, we will not see the billions we lent to them returned to us at all.

And figure this - the finance industry used to pay 25% of all UK taxation received by the exchequer. If they leave and we cannot back fill this amount, it will be you and me that will be asked to pay it.